The Liability Exemptions in the Senate Brownfields Bill (S. 350)

June 15, 2001
RS20869

This report deals solely with the liability provisions of S. 350, found in Title II of the bill. (The manager’s amendment does not concern these.) These provisions cover three types of innocent parties: (1) owners of properties contaminated from contiguous properties, (2) prospective purchasers, and (3) innocent landowners.

Order Code RS20869
Updated June 15, 2001
CRS Report for Congress
Received through the CRS Web
The Liability Exemptions in the Senate
Brownfields Bill (S. 350)
Robert Meltz
Legislative Attorney
American Law Division
Summary
By broad consensus, the stringent Superfund Act liability scheme is a key stumbling
block to redevelopment of “brownfields” – underused facilities where expansion or
redevelopment is complicated by real or perceived contamination. S. 350, passed by the
Senate on April 25, 2001, deals with this problem by adding two new liability exemptions
to the Superfund Act, and clarifying a third. Each of these exemptions deals with a type
of innocent landowner. The two new exemptions are for owners of land contaminated
by a source on contiguous property, and for prospective purchasers of property that is
known to be contaminated. The clarifying exception provides detailed content to “all
appropriate inquiry,” a phrase used in the existing Superfund Act as a prerequisite to a
land buyer’s use of the “innocent landowner” liability defense.
That it would be a good thing to encourage redevelopment of “brownfields” appears
to be noncontroversial.1 “Brownfields,” by way of background, refers to “real property,
the expansion, redevelopment, or reuse of which may be complicated by the presence or
potential presence of a hazardous substance, pollutant, or contaminant.”2 Many such sites
are located in the urban core, and are well served by infrastructure. Moreover, capital
investment steered toward brownfields is capital investment that does not promote urban
sprawl on “greenfields” – pristine outlying areas.
By broad consensus, a key stumbling block to redevelopment of brownfields is the
stringent liability scheme in the Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA, or “Superfund Act”).3 That scheme imposes strict, joint and
several, and retroactive liability on (1) past and present owners and operators of facilities;
(2) persons who transported the hazardous substances to a facility; and (3) persons who
1
For general background on the brownfields issue, see CRS Report 97-731 ENR, Superfund and
the Brownfields Issue, by Mark Reisch.
2
S. 350 § 101(a). See also the similar EPA definition of brownfields at 62 Fed. Reg. 4624, 4624
(1997).
3
42 U.S.C. §§ 9601-9675.
Congressional Research Service ˜ The Library of Congress
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“arranged for disposal or treatment” of hazardous substances at a facility owned or
operated by another – where there is a release, or threatened release, of hazardous
substances that causes response costs to be incurred.4 As it now stands, CERCLA
contains no provisions relaxing its daunting liability provisions for persons who buy
brownfields facilities with the socially desirable goal of upgrading them. By becoming an
“owner” of a “facility,” and perhaps an “operator” of one as well, such buyers are fully
subject to the Act’s liability scheme.
While the statute lacks liability exemptions for brownfields redevelopment, EPA has
undertaken several liability-related administrative initiatives to encourage brownfields
development. Most directly on point, the agency has allowed expanded use of
“prospective purchaser agreements.”5 These constitute a “no action assurance” by EPA
that it will not enforce against someone who wants to buy contaminated property for
cleanup or redevelopment. There must be a clear benefit to EPA (often, obtaining cleanup
funding not otherwise available) and/or to the community in entering into the agreement.
Another initiative is the EPA “comfort letter,” a notification to the prospective buyer of
a brownfield (such as a closed military base) as to EPA’s enforcement intentions there,
based on information then known to EPA.6 Comfort letters are not binding assurances,
however, as the prospective purchaser agreements are. They are solely informational.
The above EPA policies, however, constrain only EPA. They provide no assurance
that other parties may not sue under the Act. ( In some cases, however, EPA may consider
de minimis settlement with a buyer to protect him/her from contribution suits.) Also note
that while some states, as part of their own brownfields programs, have provided
protection from liability under state law as an incentive for investment in these sites, states
are without power to waive liability under the federal CERCLA.
To address these liability issues, and to provide other encouragements for brownfields
redevelopment, a Senate brownfields bill, S. 350, was introduced on Feb. 15, 2001. In its
introduced form, the bill, titled the Brownfields Revitalization and Environmental
Restoration Act of 2001, was identical to S. 2700 of the 106th Congress. It was reported
from the Senate Committee on Environment and Public Works on March 127 and, with a
manager’s amendment, passed the Senate on April 25 by a 99-0 vote.
This report deals solely with the liability provisions of S. 350, found in Title II of the
bill. (The manager’s amendment does not concern these.) These provisions cover three
types of innocent parties: (1) owners of properties contaminated from contiguous
properties, (2) prospective purchasers, and (3) innocent landowners. Parenthetically, one
might observe that the name of Title II, “Brownfields Liability Clarifications,” is not
particularly apt. Despite the mention of “Brownfields” in the title’s name, the word
nowhere appears in the liability provisions proposed by Title II to be added to CERCLA.
Thus, it would seem that their application is not restricted to brownfields, but apply to all
4
CERCLA § 107(a)(1)-(4); 42 U.S.C. § 9607(a)(1)-(4). Hereinafter, references to “releases”
should be deemed to mean releases or threats of releases.
5
60 Fed. Reg. 34792 (1995).
6
62 Fed. Reg. 4624 (1997).
7
See Sen. Rept. No. 107-2.
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sites where there are released hazardous substances. In addition, it appears that Title II’s
provisions are far more than “clarifications” of existing law. This is particularly true for
the contiguous property and prospective purchaser provisions, which have no counterpart
in the existing statute, though they do reflect EPA enforcement practice.
Contiguous properties
CERCLA does not exempt a landowner from liability merely because the
contamination on his/her property arrived there from an adjacent property, with no
complicity on the landowner’s part. One who has the misfortune to own land next to a
hazardous-waste dumpsite, for example, may become liable under CERCLA when
contaminated groundwater from the dumpsite migrates onto/under his or her property.
Under such circumstances, the homeowner becomes an “owner”of a contaminated
“facility,” a status to which CERCLA attaches liability, as noted. Recognizing the
potential injustice of such liability, EPA policies state that the agency will not seek to
impose CERCLA liability on residential homeowners unless their activities led to the
release,8 nor on owners of land above aquifers contaminated by subsurface migration from
outside the property.9
Section 201 of S. 350 also speaks to innocent owners of contiguous properties –
more formally, to those who own land that is “contiguous to or otherwise similarly
situated with respect to” land not owned by that person, and that is, or may be,
contaminated by a release of a hazardous substance from the contiguous property.
Notwithstanding such ownership, section 201 states that such a person shall not be
deemed the owner or operator of a facility for purposes of CERCLA liability, if the person
satisfies eight conditions. Among those conditions, the person did not cause or contribute
to the hazardous-substance release, is not potentially liable or affiliated with any other
person that is potentially liable for response costs at a facility, took reasonable steps to
stop or prevent releases, and fully cooperates with and gives access to those authorized
to conduct response actions or natural resource restoration.
The last-listed of the eight qualifying conditions states that when the person acquired
the property, the person conducted “all appropriate inquiry” and yet “did not know or have
reason to know” that the property was or could be contaminated by a release or threatened
release of hazardous substances from the other property. A person disqualified from
invoking the bill’s contiguous property exemption because he/she had, or had reason to
have, such knowledge, may still qualify for prospective-purchaser status under the bill,
discussed below.
8
EPA, Policy Towards Owners of Residential Property at Superfund Sites, OSWER Dir. No.
9834.6 (July 3, 1991).
9
EPA, Final Policy Toward Owners of Property Containing Contaminated Aquifers, 60 Fed.
Reg. 34790 (1995).
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Prospective purchasers and windfall liens
Persons interested in investing in contaminated sites must face the fact that at the
moment they accept ownership of the site, they become liable under CERCLA as owners
(and perhaps operators). To encourage more investment in such sites, EPA, as noted
earlier, has allowed expanded use of “prospective purchaser agreements” – binding
commitments by the agency not to enforce against one who wants to buy contaminated
property for cleanup or redevelopment. The Senate report, however, asserts that the
process of negotiating these case-by-case arrangements has been “cumbersome and
resource-intensive.”10
Section 202 of S. 350 creates a liability carve-out for “bona fide prospective
purchasers” whose liability, following purchase, is based solely on their owner or operator
status under CERCLA. As with contiguous property owners, however, numerous
conditions attach to qualifying as a bona fide prospective purchaser. Two key conditions
are first, that the owner bought after the bill is enacted, and second, that the owner does
not impede the response action or natural resource restoration. Other conditions demand
that all disposal of hazardous substances at the facility occurred before purchase, and that
the person made “all appropriate inquiry” into the previous ownership and uses of the
facility,” exercises appropriate care as to hazardous substances found at the facility,
cooperates with and gives access to those authorized to do response actions or natural
resource restoration at a facility, does not impede any institutional control at the facility,
and is not potentially liable or affiliated with any other person that is potentially liable for
response costs at a facility.
While bona fide prospective purchasers are protected from liability, S. 350 seeks to
ensure that they do not reap a windfall in the form of the increase in the property’s value
as a result of the federal cleanup. If (a) the United States incurs response costs at a
facility acquired by a bona fide prospective purchaser, (b) these costs are not recovered
from liable parties, and (c) the response action increases the facility’s value over its preresponse value, then S. 350 states that the Government acquires a lien on the facility.
Alternatively, the bill says, the Government may obtain other assurance from the owner
that unrecovered response costs will be repaid. The lien shall be in an amount not to
exceed the response-action-caused increase in property value, and shall continue until the
lien is satisfied or the United States recovers all its response costs at the facility.
Innocent landowners
One of the few defenses allowed by CERCLA to its liability scheme is the “third-party
defense.”11 This defense is made available to a person who can show that the release or
threat of release of a hazardous substance was caused solely by –
an act or omission of a third party other than ... one whose act or
omission occurs in connection with a contractual relationship, existing
directly or indirectly, with the defendant ....
10
Sen. Rept. No. 107-2, at 11.
11
CERCLA § 107(b)(3); 42 U.S.C. § 9607(b)(3).
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The third-party defense was contained in the original CERCLA, enacted in 1980. Soon
after its enactment, however, the question arose whether this language precluded use of
the defense by innocent buyers of previously contaminated land. Such a buyer might hope
to escape CERCLA liability by claiming that the hazardous substance on his/her property
was caused solely by a third party – that is, by the seller or the seller’s predecessors in title.
But therein lies a problem: the buyer has a “contractual relationship” with the seller (the
contract of sale), and perhaps an “indirect” one with the seller’s predecessors. Thus, the
third-party defense seemed unavailable in this very common circumstance.
To rectify the problem, the 1986 amendments to CERCLA added a definition of
“contractual relationship.”12 “Contractual relationship,” the amendments declared,
includes deeds and other instruments transferring title or possession of land – with a big
exception. Not included are transferring instruments where the land was acquired after the
hazardous substances were disposed of, and the person at the time of acquisition “did not
know and had no reason to know” that any hazardous substances had been disposed of
there. The 1986 amendments went on to explain that to establish that a buyer “had no
reason to know,”a buyer must have undertaken, at the time of acquisition, “all appropriate
inquiry into the previous ownership and uses of the property consistent with good
commercial or customary practice.”13 In sum, one who buys land after “all appropriate
inquiry” reveals no hazardous substances has a third-party defense if hazardous substances
are later discovered there and a CERCLA cleanup is conducted. Used in this way, the
CERCLA third-party defense has become known as the “innocent landowner defense.”14
Because huge monetary consequences may attach to whether one did “all appropriate
inquiry” before buying land, the meaning of the phrase has been long debated. In
response, bills have been dropped in several recent Congresses to supply a detailed
statutory definition of “all appropriate inquiry.” S. 350 joins this group, through its section
203.
Section 203 gives the EPA Administrator two years after bill enactment to establish
standards and practices that define “all appropriate inquiry.”15 What these regulations
must include is carefully spelled out – namely (1) the results of an inquiry by an
environmental professional; (2) interviews with past and present owners, operators, and
occupants of the facility; (3) reviews of historical sources, such as chain of title documents;
(4) searches for recorded environmental cleanup liens; (5) reviews of government records;
(6) visual inspection of the facility; (7) specialized knowledge on the part of the defendant;
(8) the relationship of the purchase price to the value of the property if uncontaminated;
(9) commonly known or reasonably ascertainable information about the property; and (10)
12
CERCLA § 101(35); 42 U.S.C. § 9601(35).
13
CERCLA § 101(35)(B); 42 U.S.C. § 9601(35)(B).
14
The innocent landowner defense should be distinguished from the innocent landowner provisions
in CERCLA section 122(g)(1)(B). The latter offers innocent landowners who have not done “all
appropriate inquiry” an opportunity for expedited settlement with EPA, rather than a total defense
from liability. 42 U.S.C. § 9622(g)(1)(B).
15
EPA’s definition will also govern the meaning of “all appropriate inquiry” as used in the
contiguous property and prospective purchaser provisions of S. 350.
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the obviousness of the presence or likely presence of contamination at the property.
These requirements for EPA’s regulation closely track the contents of the American
Society for Testing and Materials (ASTM) standard for environmental site assessments.16
Section 203 contains special “all appropriate inquiry” definitions for those who
bought land prior to the promulgation of EPA’s regulations. For property purchased
before May 31, 1997, a court shall take into account any specialized knowledge on the
defendant’s part, the relationship of the purchase price to the value of the property if
uncontaminated, commonly known information about the property, the obviousness of the
presence or likely presence of contamination at the property, and the ability of the
defendant to detect the contamination. For property purchased on or after May 31, 1997,
but before EPA promulgates its standards, the procedures of the ASTM shall constitute
“all appropriate inquiry.” Because the post-promulgation requirements parallel the ASTM
standards, all property bought after May 31, 1997 is held to nearly the same “all
appropriate inquiry” standard.
Section 203 also adds a few preconditions to use of the innocent landowner defense
to bring it into conformance with the preconditions for the contiguous property and
prospective purchaser defenses above. These new preconditions are that the landowner
fully cooperates with, and provides access to, persons authorized to conduct the response
action; complies with land use restrictions; and does not impede institutional controls at
the facility. Under existing CERCLA, the landowner must also exercise due care
regarding the hazardous substances at the site, and take precautions against foreseeable
acts or omissions of third parties.17
Finally, section 203 makes explicit what has long been implicit in the “all appropriate
inquiry” concept – that buyers of residential property (other than governments and
commercial entities) need only meet relaxed standards for adequate inquiry. For such
buyers, a facility inspection and title search that reveals no basis for further investigation
are sufficient.
16
ASTM, Standard Practice for Environmental Site Assessments: Phase I Environmental Site
Assessment Process (E 1527).
17
CERCLA § 107(b)(3); 42 U.S.C. § 9607(b)(3).